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PayPal reserves, holds : policy changes explained

By Chris Dawson December 21, 2009 - 12:19 am

paypal logoWe’ve heard from a number of sellers recently that PayPal seem to be stepping up the number of rolling reserves and 21 day holds they’re putting on accounts at the moment. There’s been some conflicting information going about – not least from PayPal support staff – so we asked PayPal to clarify exactly what’s going on. Here’s what they told us.

(If you’re unclear about the difference between holds and reserves, then this post has more details.)

Firstly, PayPal will never place reserves on every seller’s account. Some support staff seem to have made comments like “it’s not just you, it’s everybody”. Obviously that gives the impression that reserves are coming to all accounts, but PayPal have categorically denied it. Just because their T&Cs allow for hold on any account does not mean that holds will be applied to every account: they will not.

Reserves are for “the accounts that seem to be statistically the most dangerous”
There are a number of criteria which influence whether a reserve will be applied to your account. These include (but are not limited to):

  • how long you’ve been in business,
  • number of disputes/claims raised against you,
  • negative feedback,
  • high priced items,
  • risky categories (mobile phones and tickets were mentioned specifically),
  • sudden changes in selling activity such as a shift in prices or inventory.

The majority of reserves will be 10% or less, though there is no stated maximum and PayPal have confirmed that holds of 40% are possible.

21-day holds may now be applied to off-eBay transactions. Yes, you may get holds on website transactions as well as eBay ones. The release for these holds will be the same as eBay: proof of delivery or 21 days without a complaint (positive feedback won’t, obviously, be applicable to off-eBay transactions).

Account-based holds rather than transaction-based holds. Rather than looking at individual transactions, PayPal will now be looking at sellers’ overall activity. In other words, they’re looking at you, not your buyers:

good sellers who had one strange looking transaction will no longer see a hold, but sellers who have a bad run of disputes or negative feedback might start seeing holds placed on their account until things calm down.

Previously, sellers with more than 100 feedbacks, who had been registered for longer than 6 months and who had buyer dissatisfaction rates of less than 5% had been told they would never suffer a hold: now it seems that may not be so cut and dried, as a run of bad feedback or complaints could get a hold slapped on your account.

Indeed, not even eBay’s biggest sellers are immune now: White Elephant Media, one of eBay.com’s biggest media stores with a feedback score of 327,000, has recently closed down operations, due, they say, to being asked by PayPal to hold over half a million dollars in reserve:

Our PayPal/eBay account was closed November 18, 2009, after selling successfully on eBay for almost 6 years. Several weeks ago, we were asked by PayPal to give them a “deposit” so we could keep accepting PayPal payments. … At first PayPal asked for us to pay $212k into this deposit account. They expected it to be funded in about 3 months. On November 13th, … PayPal increased the amount they needed in our “deposit” account to $600k. … They closed our account after we indicated it would be impossible to come up with $600,000 in about 6 weeks during the holidays. Why they wanted more than a half a million dollars and when it would be repaid if ever was exceptionally nebulous and never explained to us. 48 hours after we were locked out of our account, there was well over $230k in the account. That is the money we use to pay for our merchandise and postage. We were denied access to it and therefore we are unable to operate.

If it could happen to White Elephant, it could happen to you.

So what can sellers do about it?

cash flow : picture of a tap with coins coming out of it instead of waterFirstly, bear in mind that it could happen. Many of the sellers I’ve talked to about this have said that their biggest problem was lack of warning. Some weren’t even aware that PayPal *could* put this kind of hold on their account.

Secondly, remember that this is about PayPal’s assessment of the riskiness of your account. Be realistic about that. Some areas *do* have the potential cause more trouble than others (mobile phones and tickets as PayPal said; I’d add software, refurbished electronics and designer clothing to that). If your courier consistently damages goods, or you’re using a less-than-reliable drop-shipper, or your customer service procedures are not keeping up with the level of your business, then you are at risk.

If you want to carry on trading on eBay, dropping PayPal is not an option. But you should (everyone should) consider if and how their business would survive without eBay and/or PayPal. Do you have an alternative? Is it *enough* of an alternative that you could ramp it up to replace eBay if you had to?

And if PayPal put a 10% hold on your turnover, could you trade through that? For those who take their buyers’ payments and use them to pay a drop-shipper, I suspect the answer is no. But – especially after this incredibly difficult year – many more retailers are cutting their cash-flow ever closer, using this week’s takings to buy next week’s stock. This is trimming it far too fine.

Look realistically at your cash flow and consider what would happen to your business if 10% of it were held for 180 days. If you couldn’t survive, then PayPal isn’t your problem – your cash flow is the problem, and you need to reassess it, and build up a cushion to protect you not only against PayPal holds but against any other unexpected thing that might be thrown at you.

  • Happy Days
    9 years ago

    Excellent and informative article – thank you.

    The prospect of having a paypal account suspended, frozen or otherwise inactive would clearly cause any business major problems.

    Do you know if Paypals actions relate to a specific account, or to a specific individual?

    My wife and I used to sell on ebay under different user ID’s – selling completely different products and as such we each had our own Paypal account.

    I was just wondering that if a seller had potential access to a second account could that second account be used in the event that the first was suspended?

    • 9 years ago

      In our experience no. I had a negative balance on my old personal account a couple of years ago which caused our business account to be suspended. Anything they can link will be shut until problem resolved.

    • 9 years ago

      Anything they can link will be shut until problem resolved.
      That would be my expectation generally too, but I will try and get it confirmed with PP.

  • northumbrian
    9 years ago

    clicked on our account once and big banner across the top saying your account has a hold applied
    when we clicked on it
    the percentage was a bid fat 0%
    yes zero, naught, nowt, nada,
    a few weeks later the whole thing disappeared ,
    could not be bothered to contact paypal,
    if they were daft enough to withold 0%
    let them

  • Lino
    9 years ago

    Reserves are for “the accounts that seem to be statistically the most dangerous”

    That’s the reason Paypal finally gave us after pushing them continuously for an explanation.

    We sell low value/low risk goods etc. Asked Paypal to explain how they came to this conclusion and were told no information would be made available.

    If, as Paypal say, we are high risk, why won’t they tell us why, and tell us what we have to do to become low risk?

    • 9 years ago

      As I’ve said before Richard, I’m utterly mystified about what their issue is with you. Maybe they know I have nefarious designs on a Dalek USB hub, who knows?

      (I wonder, I just wonder, if it’s branding? Could it be frequently-faked stuff like Disney? Just a thought…)

    • Lino
      9 years ago

      Possibly, I know accounts are initially limited so that only a certain number of “branded” goods can be listed, although this limit is very easily removed.

      But if this is the case, why don’t Paypal say so?

      It still seems like these Reserves are only affecting a very small number of sellers, and I don’t think we do anything suspicious or different to warrant having one in place.

  • Bigpoppa
    9 years ago

    To me it seems that they apply these reserves, fairly randomly, so that if/when they are asked to show how they are fighting “crime” on eBay/Paypal they can use this process to show that they are doing “something”.

    • Lino
      9 years ago

      I’m not sure how holding our money helps fight crime. It doesn’t even help Paypal, as we now do not accept Paypal for all non-eBay business, which incidently dwarfs the size of the eBay business.

    • Dee
      9 years ago

      They don’t help fight crime just help paypal make more money! 👿

  • shanx
    9 years ago

    It’s crazy. PayPal are holding these funds to earn an absurd amount of interest….millions of PayPal users….do the maths!

    • 9 years ago

      I may be wrong but as I understood it PayPal are not allowed to use this money to gain interest on as it’s ringfenced.

    • Lino
      9 years ago

      Paypal told me (could be right, could be wrong) that in the States, sellers do earn interest off the money that Paypal holds.

    • 9 years ago

      > shanx says:
      > It’s crazy. PayPal are holding these funds to earn an absurd amount of interest….millions of PayPal users….do the maths!

      Sometime ago we did an estimate of the funds being held, based on public statements from PayPal/eBay. The numbers are PER QUARTER.

      “Using numbers from eBay’s SEC (U.S. Securities and Exchange Commission) filing, 23 October 2008 10-Q Quarterly Report Form 10-Q, the following is the worse case (for sellers or best case for eBay/PayPay) calculation of “1%” per quarter.

      * Active eBay users affected: 830,000
      * Active registered PayPal accounts affected: 548,000
      * Net total payment volume, HELD: $115,690,000″

      Some Wall Street type doing similar calculations claimed the interest PayPal could be making to be insignificant.

      > Lino says:
      > Paypal told me (could be right, could be wrong) that in the States, sellers do earn interest off the money that Paypal holds.

      As we understand it, regular PayPal accounts draw no interest.

      If you have a PayPal business account your funds draw a whooping 0.07% APY. With PayPal pocketing the difference between what they get and what they give you.

      Should there be a PayPal IPO, grab it. With your funds being held, at least you’ll get it back.

      //

      “7 day average yield as of 12/16/2009. Yield varies over time. Money market funds are neither insured nor guaranteed by the FDIC or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 USD per share, it is possible to lose money by investing in the Fund.”
      PayPal Money Market Fund Overview

  • In The Know
    9 years ago

    Don’t be taken by White Elephant’s victim story. Dave Hooper “CEO” is known for starting up businesses and ending up in the hole owing supplies and investors. Hooper sells air – the guy is a walking scam.

  • 9 years ago

    And if you think you have it bad,
    http://forums.ebay.co.uk/thread.jspa?threadID=1100281988&tstart=0&mod=1262174886103
    there’s someone on the PowerSeller board who says their reserve is 90% for 30 days. 😯

  • 9 years ago

    OTOH this is the kind of letter that’s appearing in small local papers:
    http://www.paysonroundup.com/news/2009/dec/29/unhappy_ebay_and_paypal_policies/

    AT THE VERY LEAST PayPal need to do some serious work communicating on this one. Hiding it in the UA is unacceptable; they need to stick their heads above the parapet and make sure everyone knows that this might happen. OR drop the policy of course.

  • 9 years ago

    We sttarted using a dormant account today and having had a couple of sales I just noticed that paypal are holding the whole balance (new ebay account only) for 21 days until they are satisfied my customers receive their goods.

    The 41,000+ UK and 7000+ Oz happy customers on the linked id’s are obviusly not enough evidence…

    Bryn

    • Bigpoppa
      9 years ago

      We had the same problem…odd

    • 9 years ago

      Less odd than stupid, I’d say. 🙄 You’d really have thought it was worth them filtering for existing sellers with this one.

    • 9 years ago

      I have got on to our account manager to see if there is a “manual overide”…. Will let you know what he says

      As an exgtra irritation we use the Paypal csv files to import into our database for our daily sales and as an extra column has now been added to the sheet then it has scewed it all up….

      All for £7.13

      Bryn

    • 9 years ago

      Paypal removed the hold after I emailed our account manager

      Cheers Bryn

    • 9 years ago

      Yay for Bryn’s account manager :mrgreen:

  • Hey I love the new Freeze. Buyers pay, I reply to them, tell them honestly the funds are on hold and I cannot ship the item. YOU DO HAVE AN ALTERNATIVE PAYMENT OPTION: Refund your customer the money and ask them if they can send a check for 10% less of the original sale of the item and discount your customer rather than paying ebay/paypal fees. Of course ebay will need to refund the insertion fees, etc since the transaction wasn’t successful and the funds were not collected. So far it works for me. Next step is to setup google cart and re-direct the customers using eBay as a advertising front linked with images from your website etc. THINK PEOPLE!!!! Just let paypal crumble on their own but use ebays advertising strengths to grow your business. Ebay was a bad idea in the first place. A shame to see how valuable items such as comic books were once worth a shit load of money. Re-Create the market and sell your item for what its worth not based on ebays “market value”. It’s about your companies customer service not who’s the cheapest here. You know!!!!!

  • Hey I love the new Freeze. Buyers pay, I reply to them, tell them honestly the funds are on hold and I cannot ship the item. YOU DO HAVE AN ALTERNATIVE PAYMENT OPTION: Refund your customer the money and ask them if they can send a check for 10% less of the original sale of the item and discount your customer rather than paying ebay/paypal fees. Of course ebay will need to refund the insertion fees, etc since the transaction wasn’t successful and the funds were not collected. So far it works for me. Right now I get more sales through craigslist by matching the auction title for the item with the craigslist title when posting. The customer will look up and most likely paste the title of the auction ad only to google your craigslist ad. Funniest thing is when they discover your username is the same but the price is 10% less through craigslist, guess where that sale will be directed from? Craigslist. Craigslist has done a perfect form of top search results so just match your auction ad title with your craigslist ad and I will guarantee your sale will be through craigslist and you can call your customer to arrange a payment method like “Google Checkout” “Bank Of America POS”, and “Verisign” etc. So your next step is to setup google cart and re-direct the customers using eBay as a advertising front linked with images from your website etc. THINK PEOPLE!!!! Just let paypal crumble on their own but use ebays advertising strengths to grow your business. Ebay was a bad idea in the first place. A shame to see how valuable items such as comic books were once worth a shit load of money. Re-Create the market and sell your item for what its worth not based on ebays “market value”. It’s about your companies customer service not who’s the cheapest here. You know!!!!!

    • 9 years ago

      It may have escaped your attention but Meg Whitman left eBay over a year ago 😀

    • Yes and left us with a bunch of crap. It was so bad you’d wonder why she left. Now for Governor? She’d mess up California more than she messed up paypal/ebay. She has no control in the end which she lacks heavily. Instead of finishing what she has started she ran off. Now many are effected with her mess.

  • It may all end like Enron with this much heat. However the originator needs to be included with the downfall of the company. Can’t let the original employees walk away from problems. WE HIRED THIS COMPANY TO DELIVER THEY ARE OUR EMPLOYEES we paid them to get the job done but they failed. Utterly

  • 1 vote for google auctions

  • Microsciences
    9 years ago

    I generally buy and sell used sport car parts and used lab equipment. This is high risk? I’ve never had a complaint or a negative rating yet sale just made for $28.00 is being held. The customer paid the shipping but I have to fund it until its released. I found an alternative, I think in Paymate and will definitely check out google auctions. I still haven’t figured out what gives Paypal the right to inject themselves into a transaction as a possible arbitor without taking any responsibility for the outcome.
    If you had a problem with goods you bought at Macy’s, could you go to their bank and ask for your money back?
    I don’t think that one works very well. Unfortunately, there are so many users that its impossible to get a significant number together to boycott Paypal until they rescinded the policy.
    And, as far as I can tell from the policy agreement, Paypal can put the money they hold in an interest bearing account, take the additional revenue and give you nothing of what they’ve earned by using your money. How is this a good thing for the seller?

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